Types of Companies in Mexico
There are several types of companies in Mexico. In fact, Mexico’s Company Law establishes seven corporate legal structures or company types. Despite the number of options, investors or entrepreneurs normally choose either a Mexican Stock Company (Sociedad Anónima or S.A.) or a Limited Liability Company (LLC) because:
- they limit the investors’ responsibility before third parties;
- corporate governance features;
- international taxation reasons; and,
- the variable capital regime.
If you wonder what are the steps to create a company, check our Guide on Creating a Company in Mexico.
The Mexican Stock Company
The Stock Company is considered an “impersonal” type of company because shareholders may easily break their legal ties with the company and other shareholders.
The Mexican Stock Company (“S.A.”) requires two or more persons, either natural or legal entities, that are known as shareholders. A shareholder’s liability is limited to the value of their share(s), which is considered a security, before third parties and the company. In other words, the shareholders are not legally responsible for the company’s actions, unless there are grounds to pierce the “corporate veil”.
The Stock Company is considered an “impersonal” type of company because shareholders may easily break their legal ties with the company and other shareholders. According to the “default” rules, shareholders may freely transfer their shares to any person without legal restrictions. However, a stock company’s bylaws may issue different types (e.g. series) of shares and include rules that, for instance, restrict or limit the transfer of shares and, thus, creating a “stronger” bond between the shareholder vis-a-vis the company and other shareholders.
Legal Features of the Mexican Stock Company
The company’s name must always include the expression “Sociedad Anónima” or S.A.
The law requires at least two shareholders, while an unlimited number of shareholders is allowed.
The Mexican Company Law does not provide a minimum amount of stock capital.
The Stock Company is made up of three “bodies” (or “organs”) that are (1) Shareholders, (2) the Directors, and (3) surveillance.
The shareholders’ liability before the company and/or third party is limited to their contributions or committed contributions as expressed in their shares.
A Stock Company is a Mexican company and, thus, it is subject to a 30% corporate income tax.
The Shares
- The shareholder must “pay” his or her shares.
- A share proves the “status” of the shareholder and his rights. However, any transfer of share must be registered in the share register (or book).
- Generally, the shares have the same value and rights unless otherwise agreed; in other words, one share equals one vote. However, the articles of incorporation and/or bylaws may authorize to restrict of economic or voting rights, or both, on series or classes of shares.
The Limited Liability Company in Mexico
A Limited Liability Company (LLC) shares similar legal traits as a Mexican Stock Company, but also important differences. Like a shareholder of a Mexican stock company, a partner’s liability is limited to their contributions or committed contributions as expressed in their corporate interest.
Unlike a stock company, an LLC is made up of two or more partners, but a maximum of 50, who will receive a “corporate interest”; the legal ties between the partners are stronger since corporate interests are non-negotiable instruments; partners are more “involved” in management decisions, and they may leave the company under specific circumstances entailing management disagreements.
International Tax: Check the Box
From an international tax perspective, an LLC is considered a flow-through entity or a fiscally-transparent entity, which may be a crucial aspect when selecting the company type or corporate structure.
The company’s name must always include the expression “Sociedad de Responsabilidad Limitada” or S. de R.L.
An LLC requires minimum two partners and cannot have more than 50.
In theory, the minimum capital of a company may be two (2) Mexican pesos.
The LLC Company is made up of two “bodies” (or “organs”) that are (1) Partners and (2) the Managers or Board of Managers. The bylaws may provide the creation of a (3) surveillance council, but this organ is optional.
A Partner’s liability is limited within the limits of their contribution.
An LLC is a Mexican company and, thus, it is subject to a 30% corporate income tax. Plus, it is a fiscally-transparent entity for international taxation purposes.
The Corporate Interest
- The corporate interests may have different values and different categories; for instance, a corporate interest may have privileged economic rights on the allocation of profits or losses, but the exclusion of profits or losses is prohibited by law; interests may also include privileged voting rights.
- The interests are non-negotiable instruments and are “indivisible.”
- The interests are assignable or transferable as indicated by law (or as modified by the bylaws).
Other Types of Companies in Mexico
We highlight the existence of other company types or corporate structures, such as the simplified stock company (Simplified Company, SAS acronym in Spanish) and the Stock Investment Promotion Company (SAPI, acronym in Spanish).
Simplified Company or Sole Proprietorship Company
One or more individuals may incorporate the simplified company, which is a sort of “sole proprietorship” company. In other words, a legal person cannot be a shareholder of a simplified company.
Among other restrictions, a simplified company’s annual income shall not exceed $5 million Mexican pesos (about 235K USD). If such an event occurs, the shareholders must transform the company into another company type, such as a stock company or an LLC.
Stock Investment Promotion Company or SAPI
The Stock Investment Promotion Company (“SAPI”, acronym in Spanish) was introduced in the Mexican Securities Market Law of 2006. The SAPI was designed to facilitate access to (venture) capital for small and medium enterprises. Back in 2006, SAPI was a modern Stock Company since the Law authorized, for instance, limiting economic and non-economic share rights, shareholder agreements, strong minority shareholder rights, as well as modern corporate governance provisions.
Needless to say, the Mexican Company Law was amended in 2014 to update the legal company framework. As a result, a Stock Company now has much more flexible rules in matters related to shares, shareholder agreements, and minority shareholder rights. The Stock Company is, however, less flexible than the SAPI since the SAPI can purchase its own shares or issue shares that limit or expand the allocation of profits, while the Stock Company cannot do so.
Depending on whether it is venture capital or the possibility of raising capital and having new business partners, the SAPI may be the ideal corporate structure. In some cases, a business must adopt a SAPI when, for instance, engaging in intermediary financial activities, issuance of digital assets (cryptocurrency), and crowdfunding, among others.
